uploads///Gold and SP  Performance

Strong Equity Markets Pinned Gold Lower


Dec. 4 2020, Updated 10:42 a.m. ET

Gold versus equity

As the jitters from the global equity markets subsided, the demand for safe-haven assets has also been muted. Capital markets are a form of investment. They’re considered a risky asset compared to gold. Gold and silver are famous safe-haven assets. Their demand often rises as investors’ risk aversion increases.

In the following chart, you can see the longer-term relation between gold and the S&P 500 index. Markets rose since 2013 and gold fell. However, at the end of the figure, you can see a reversal. The equity market fell at the beginning of 2016. Global unrest extended from China. Gold is the alternative store-of-value asset. It rose exponentially with the fall of the main world markets and the possibility of a delay in the liftoff by the Fed.

The fluctuations in gold’s price are easily monitored by investments in the SPDR Gold Shares (GLD). The variations of the S&P 500 index can be depicted by the SPDR S&P 500 ETF (SPY). The iShares Gold Trust (IAU) is also used as an alternative for tracking gold.

As gold rose initially, the revival in the equity markets shadowed the precious metal. However, silver is maintaining its gains. It’s used extensively as an industrial metal as well.

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Leveraged funds

Gold futures for June expiration fell 1.7% on a five-day trailing basis. It also witnessed a 30-day trailing loss of 1.6%. Despite such falls, leveraged gold mining funds like the Direxion Daily Gold Miners ETF (NUGT) and the Direxion Daily Junior Bull Gold 3X (JNUG) rose 9.6% and 19.6%, respectively, on a five-day trailing basis.

According to the Commodity Futures Trading Commission’s data on April 15, hedge funds and money managers raised their bullish bets on gold and silver.


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